AIIB & NDB 2021 Lending Reveal Closer Financial Partnering Between Beijing and Delhi
Two major, neighboring shareholders working together to solve problems in China, India, and South Asia as BRI financing completes its main investment cycle.
By Henry Tillman and Chris Devonshire-Ellis
Two Beijing developed multilateral banks have been making significant loans in the year to date, with a great deal of financing for both Covid-related and development projects. The Asian Infrastructure Investment Bank (AIIB) which China instigated back in 2013, and now holds a 26.1% equity stake in, together with the BRICS partnered New Development Bank (NDB) have both had busy Q1 loans. These coupled with activity from the People’s Bank of China (PBOC) and China Export-Import Bank(CEXIM) give some idea of where China policy is influencing loans. We can summarize these as follows:
China Policy Bank Commitments
There was one policy bank loan by CEXIM to a Turkish SOE bank for US$400 million and a US$1.5 billion three-year currency swap from the PBOC to Sri Lanka. This is consistent with the low volumes and amounts we have now been seeing for several quarters (Q3 2020 volume of one loan for US$590 million: Q4 of a single grant for US$90 million).
The Turkish loan, which contained both a USD tranche and a RMB Yuan tranche, is designed to meet the financing needs of Turkish companies engaging in China and Turkey trade, as was the PBOC currency swap.
AIIB – Macro
AIIB was involved in 10 total commitments this quarter (down from 13 in Q4 2020) including three Covid related loans (down from five in Q4), five infrastructure loans (same as in Q4) and investments in two funds (down from three in Q4).
In Q1 2021, AIIB’s total new commitments were US$2.02 billion, up 15.9% from Q4 2020’s US$1.76 billion of new commitments.
AIIB – Covid
Three Covid related loans in Q1 represented a continued quarterly decrease from the ten Covid related commitments in the Q2 2020 peak, to seven in Q3 and five in Q4 as the world slowly emerges from the depths of the crisis. The two largest Covid loans, each for US$300 million, were to the Philippines (part of a US$764 million package) and to Bangladesh. There was also a Covid related loan package totaling US$180 million for two Sri Lanka domestic lenders.
AIIB – Infrastructure
In Q1, AIIB made five non COVID related loan commitments totaling US$1.0 billion, a 6.1% decline from Q4 2020 when the bank provided US$1.065 non COVID commitments. These were to:
India (Kerala) -US$150 million; solid waste management ; AIIB 35% of total project cost (TPC)
Maldives – US$20 million; solar power project; AIIB provided 18.7% of TPC
Bangladesh – US$260 million; bridge/transportation: AIIB provided 67/8% of TPC
India (Assam)- US$304 million; power: AIIB provided 83% of TPC
Indonesia (Java) – US$310 million; electricity/power: AIIB provided 25.7% of TPC As is consistent with prior quarters, virtually all these AIIB non COVID commitments were multilateral.
AIIB – Fund Investments
AIIB invested into two funds in this quarter, totaling US$240 million, up from US$160 million in Q4 2020. The largest was a US$150 million commitment to the ISQ Growth Markets Infrastructure Fund, a closed-end fund with a target size of US$2 billion. It is designed to invest in infrastructure projects in Asia and Latin America.
Similarly, the Aberdeen Standard Investcorp Infrastructure Partners Fund, to which AIIB committed US$90 million, is designed to mobilize private infrastructure investments in the Middle East & North Africa (MENA) region.
AIIB was involved in ten total commitments this quarter (down from 13 in Q4), including three COVID related loans (Philippines, Bangladesh, and Sri Lanka), five infrastructure loans (India: Kerala and Assam, Indonesia, Bangladesh, and Maldives) and the two infrastructure funds. New commitments were US$2.02 billion, up 15.9% from Q4 2020’s US$1.76 billion. All non-Covid commitments were multilateral.
NDB – Covid
As in Q4 2020, NDB also approved two Covid loans in Q1, for US$1 billion each to Russia and China.
NDB – Infrastructure
NDB also made two infrastructure loans in Q1 2020, down from five in Q4, for a total of US$833 million, down 67.4% from Q4’s total of US$2.71 billion. One of these was for US$300 million to MTS, Russia’s leading mobile connectivity and digital services provider for upgrading cellular network and cloud services infrastructure.
The other was for NDB’s Board approved a loan of US$533 million (RMB 3.4 billion) to China for the Beijing Gas Tianjin-Nangang LNG Emergency Reserve Project. In 2019, AIIB committed US$500 million (RMB 3.3 billion) to the pipeline.
Chris Devonshire-Ellis comments: “The funds provided go some way to showing how far China is financially engaged in South Asia in particular, and especially with India, including funding for Assam, bordering Arunachal Pradesh where China has territorial claims. The acceptance of this funding by New Delhi is significant as it illustrates rather more trust between the two sides exists than is typically apparent. Also, of note is AIIB lending to Bangladesh, Sri Lanka, and the Maldives, signifying renewed confidence in these countries longer term development. India is a major shareholder in both the AIIB and NDB; these loans demonstrate that New Delhi is working closely with Beijing to provide stability and assistance to the region. That contrasts with certain political views that India, whose Prime Minister Modi is virtually attending the G7 summit this weekend, may be attracted to join a Western trade and financial alliance as opposed to a Chinese influenced one.”
Henry Tillman comments: “New Policy bank loans commitment and issuance this quarter remains virtually non-existent, except for one loan to a Turkish bank and a currency swap with Sri Lanka. Both were focused on growing bilateral trade. There has been no real volume or amounts growth since Q4 2019 and no quarterly amounts over US$5.5 billion since Q1 2019 – numbers which support our thesis that the BRI infrastructure growth phase was virtually completed by the time of the 2nd Belt and Road Forum in Q2 2019.
Since China’s equity stake in AIIB is 26% and 20% in NDB, actual Chinese commitments in AIIB and NDB in Q1 were US$691 million, not a small amount. India continues to draw proportionately well from both China led multilateral institutions. In Q4, AIIB saw three of its 13 commitments to India (India only owns 7% of AIIB); one Covid loan and two infrastructure loans, while NBD provided a US$1 billion facility to India. In Q1, India received two NBD infrastructure loans, representing US$454 million – making India the largest recipient country this quarter.”
Dezan Shira & Associates have a 30-year history of assisting UK and other foreign investment into Asia, and maintain offices in Japan, Malaysia, Singapore, and Vietnam. We also have offices throughout China, ASEAN, and India. Please contact us at email@example.com for local market intelligence and market entry assistance, or visit us at www.dezshira.com